The current concept of the EU Emissions Trading System (EU ETS) is flawed. Instead of serving a sustainable and fair climate policy, trading in CO2 emissions has become a tool of speculation, writes Mateusz Morawiecki.
Mateusz Morawiecki is the Prime Minister of Poland. This opinion piece was written exclusively for EURACTIV.
The European Union faces a moment of crucial decisions. One of them is to answer the question of knowing what to do with the CO2 emissions trading system.
The increase in prices is uncontrollable and hits the household budgets of EU citizens. It threatens the financial security of ordinary citizens, who have already suffered from the pandemic crisis. Above all, it undermines citizens’ confidence in the concept of EU climate policy.
The principle expressed in recent days by the President of the European Commission is that “the end justifies the means”.
Therefore, whatever the cost, climate policy must follow a path once chosen. It is contrary to the assumptions of a just energy transition, which are defended by Poland and other countries.
The thesis that an increase in emissions prices, and therefore a drastic increase in energy bills, is the right direction that does not require adjustments, in fact, means a green light for further speculative operation of the system. ‘EU.
According to President von der Leyen, “the rise in the price of certificates is a strong economic incentive for companies to become more efficient and to switch to clean production”.
Correct, this is the logic of reducing emissions, but the ETS trading system was supposed to encourage companies to evolve rationally, not to impose a pace that threatens their growth.
A rapid rise in prices will not be a positive incentive, but a barrier that will prevent thousands of businesses from operating. Another consequence is the growing opposition of European societies, which may revolt against the gigantic costs of an unjust energy transition.
We will not build the Green Deal if it undermines the prosperity of Europeans.
Stable and predictable prices are essential for a responsible transition. Excessive fluctuations in the price volatility of the USA can jeopardize the investments necessary for the stability of our economies. The current energy crisis shows the consequences of price instability in this sensitive sector of the economy.
The huge increase in production costs which has just been observed is forcing companies to temporarily reduce their production – the phenomenon of “demand destruction” is emerging.
Supply problems dramatically increase the price of food and contribute to rising inflation.
At the same time, the cost of purchasing emission allowances under the EU ETS is leading to an unprecedented increase in energy bills for Poland and many EU countries.
The carbon price was not to be reached until 2030, even under the most severe scenario. With such differences in forecast and reality, the transition cannot be considered fair, understandable for citizens and predictable for businesses, who, after all, need to plan their investments in advance and optimally in terms costs.
The rise in energy prices is also accentuated by the Russian geopolitical game. In any market, a monopolist will sooner or later use his advantage.
Today, the whole of Europe is experiencing it, not only in the EU, but also in Moldova and Ukraine.
I am happy that the President of the European Commission von der Leyen shares the same point of view as Poland on this issue: Europe’s dependence on imports of energy resources, in particular from a single supplier. and dominant, is contrary to the interests of the EU.
However, this should not be an argument against ETS reform, but against anti-EU energy projects such as Nord Stream 2.
Therefore, the question of why the EU did not prevent Germany from implementing this gas pipeline project keeps coming up.
The future of EU climate policy
If we do not address the emerging crisis quickly, it will have multidimensional consequences.
The EU has always been a leader in the fight against climate change, and it is understandable that it wants to maintain this position. Poland also wants to follow this path. In a spirit of solidarity, we have agreed to raise the emission reduction target by 2030 to 55%.
However, the condition was to obtain the assurance that the implementing acts would be technologically neutral and that the problem of the quota deficit in the beneficiary countries of the Modernization Fund would be resolved.
I am disappointed that these conditions were not included in the EC’s Fit for 55 proposals. High quota prices, combined with limited investment support, can in the long run significantly slow down the pace of transformation in Poland and thus bury ambitious climate policy goals.
The energy transition is not a race, where speed counts, but a common road that we must all travel together.
Therefore, I consider it necessary to carry out a profound reform of the ETS system, which will take into account the current situation on the energy market and the emission allowance market, as well as the conclusions of the European Council of December 2021. Two of the elements are now needed to move us closer to a fairer ETS trading system.
First, the analysis and control of the emission allowance market. By building appropriate regulatory and supervisory solutions, we must break the speculative bubble that has formed around ETS trading.
Second, the pressure exerted by the Market Stability Reserve (MSR) on the supply of emission allowances should be reduced. Each year, around 300 to 400 million allowances enter the MSR, which significantly reduces the number of allowances available at auction.
When the prices on the ETS market fluctuate between € 70 and € 90, allowances are always taken from the market and transferred to the reserve.
The ETS also needs to be changed so that the path no longer looks like Bitcoin, where we see a lot of speculation. Such an economy is not healthy, because it is our citizens who pay for it in the first place.
The coming years will be a real test for EU climate policy. The key to its success lies in the progress made in reducing CO2 emissions. But we must not forget that reducing emissions is not an end in itself.
The goal is to build clean and livable cities for all of us.
However, protecting the environment must serve people, not generate costs that they cannot afford. Without the trust of European citizens, no policy can be developed. This also applies to climate policy.